Cigarette production down for 2nd straight month in January 2017

Cigarette production fell for the second consecutive month in January 2017. A drop in demand due to reduced discretionary spends on account of demonetisation of Rs 500 and Rs 1,000 notes led to the dip in production. As a result, output declined by 9.6 per cent year-on-year to 709 crore sticks.

During the year, cigarette manufacturers faced a number of issues, including an increase in taxes and a constant flow of illegal products. Rise in taxes led to price hikes, which deterred consumption of bona fide products. Easy availability of inexpensive forms of tobacco such as smuggled cigarettes also reduced consumption of legal cigarettes. The government's move to demonetise high-value currencies further impacted demand for cigarettes. Consequently, cumulative output of legal cigarette fell by 1.4 per cent to 6,440 crore sticks during April 2016-January 2017.

Source: CMIE

In the next few months, the output of cigarettes is expected to be subdued as well. Legal cigarette volumes are likely to be affected despite an anticipated improvement in liquidity, which is likely to aid consumption of illegal cigarettes. As per CMIE estimates, total cigarette production is expected to decline by 1-3 per cent in 2016-17.